Shares in Aim-traded Bango (BGO:157p), a provider of a state-of-the-art mobile payment platform enabling smartphone users to charge purchases made in app stores straight to their mobile phone account, have been on the slide all year, so much so that they have given back a chunk of the large paper gains made after I suggested buying at 93p in the autumn of 2016 ('Bang on the money', 26 Sep 2016). I last reiterated that advice at 171p after I interviewed the directors at the time of the full-year results (‘Hitting record highs’, 19 Mar 2018).
At the current price, the company has a market value of £110m, which implies a rating of 17 times cash-adjusted 2019 EPS forecasts of 7.8p, a harsh valuation for such a fast-growing company. Bango has more than doubled its end-user spend (EUS) for three consecutive years – EUS was £465m at the end of February – and it turned profitable last November, suggesting that analysts’ predictions of EUS doubling again to £915m by the end of 2018 are achievable. On that basis, expect gross profit of £9.3m and a cash profit of £2.8m.
Key to maintaining this stellar growth rate will be persuading some of the 30 mobile operators it’s in discussions with to switch their Google Play routes to the Bango payment platform. The total upgrade opportunity is worth more than $3bn (£2.1bn) of EUS, on which Bango would take a small cut, according to chief executive Ray Anderson. Importantly, the company is winning operators over as it has just signed its first Direct Carrier Billing (DCB) launch for Google Play in South America with Entel, Chile’s largest mobile operator. Entel's mobile subscribers will now be able to pay using their phone bill for content and services sold in Google Play, including Minecraft, Tinder and Google Play Music.
One would expect a decent level of transactions to pass through Bango’s payment platform given that Latin America is the world's second-fastest growing mobile region after Sub-Saharan Africa, but over 70 per cent of Latin Americans don’t have a bank account. According to Bango’s directors, app stores using DCB in developing markets can see a 10-fold higher payment conversion rates compared with a credit card. Entel will also be deploying Bango Boost, the company’s intelligence data technology, which typically increases a mobile carrier’s Google Play revenues by between 20 to 40 per cent.
Interestingly, Bango’s share price is back to the March low and is massively oversold with the 14-day RSI on the floor and at a level from which the shares have bounced strongly in the past. Monthly trading volumes have been falling, too, suggesting the sellers are almost cleared out. This is a buying opportunity worth exploiting ahead of next month’s pre-close trading update. Buy.
Finally, I published five columns last week including a 2,000 word article on a small-cap fund manager that has just pulled off one heck of a property deal (‘Profit from the deal of the year’, 14 Jun 2018).
■ Simon Thompson's new book Successful Stock Picking Strategies was published on 15 March and can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging.
Simon's second book Stock Picking for Profit has now been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order.